According to the Financial Times, The Federal Reserve cuts its estimate for America’s GDP growth in 2019 to 2.3%, which is down from their projection back in September of 2.5%. The central bank explains that it lowered its expectations for economic growth due to signs of volatility in financial markets and signs of an encroaching global slowdown.
Economic slowdown hurts every sector in the U.S., but it often hits American trucking the hardest. American trucking company owners are more than familiar with the challenge of maintaining positive cash flow — even in the best of economic periods.
Despite the millions of dollars injected into the freight and transportation industry annually, many owners still find themselves struggling to meet the monthly operating costs of their business because they don’t have enough cash on hand. Waiting for payment from a customer you’ve already delivered to means your trucks aren’t moving and your staff isn’t getting paid.
This is why so many owners are relying on freight factoring to help them ensure they have the necessary liquidity to pay their staff, fuel their fleets, and keep their trucks in working order.
What is Freight Factoring?
Freight factoring is a simple and pain-free process that allows you to sell your unpaid invoices at a discount for upfront funding when you need it to help pay for insurance costs, fuel, equipment maintenance and other overhead costs, or provide you the funding you need to secure the next big growth opportunity. Here are the component parts:
The advance is the amount of money the factoring company you are working with gives you upfront. It is never 100% of the amount of the invoice, and most factoring companies will offer between 70 and 90%, but some factors such as Accutrac Capital will offer up to 97% value of the invoice.
In most cases, the advance will be available to you within 24 to 48 hours of factoring your invoice. Of course, freight factoring companies that specialize in the trucking industry understand that even this might be too long a time to wait if you run a trucking business, and so the most reliable factoring companies will offer same-day funding.
The portion of the invoice value that is not given to you in the form of the advance is called the reserve. This amount is held back until the factoring company is able to collect on the original value of the invoice from your customer. Once they do, the amount is remitted to you.
The Factoring Fee
No service is free, of course, and factoring companies will charge a nominal fee for their services. The average for the U.S. trucking industry ranges from 1% to 5% of the total invoice value, but the amount will vary from company to company, and from plan to plan. Below are three of the most popular plans available (and remember that you can always stop by Accutrac Capital to compare rates and conditions).
Flat Fee Factoring
- Starting from 1.59% All-in for 90 days
- A simple, easy-to-manage option that comes with a simple to calculate one-time cost.
Factoring Line of Credit
- Designed for larger fleets
- Starting at 0.022% per day
- A flexible LOC providing maximum value
- Starting at only 0.49% for 10 days
- An ideal option for carriers with fast-paying customers
Freight factoring is an essential financial tool for U.S. trucking and transportation businesses of any size. In trucking, your business’s strengths lie in the ability to generate and track leads, sign contracts, and make deliveries. Waiting on accounts receivable can actually cost your business money – that is, if you don’t have a proper financing option. So, don’t waste your time chasing down unpaid invoices, and leave it to the factoring professionals.